5 ms·

Wow this article is just flat out wrong about Milton Friedman. He was not an Austrian school economist. He was part of the Chicago school of economic thought. A

Wow this article is just flat out wrong about Milton Friedman. He was not an Austrian school economist. He was part of the Chicago school of economic thought. Also, he was not for moving everything back to the gold standard. They could not even get these simple facts correct.

neilwilson 5y ago
It's wrong about bank money creation as well. Banks don't just create money because they like your smile. They issue their own liabilities at a discount against collateral, the charge over which they take as their own asset. The collateral has to exist now, and generally not in the future. And it is this that causes the problem with banking - they are renown for wanting to lend you an umbrella when the sun is shining. Banks are for the most part liquidity providers against existing assets. And it is the existence of existing assets and the market for their liquidation that generates the systemic risk limit on bank lending expansion.
- nuerow 5y ago
  > Banks don't just create money because they like your smile. They issue their own liabilities at a discount against collateral, the charge over which they take as their own asset. Keep in mind that there's a theory where bank loans are actually a way to create money that doesn't exist nor has any collateral. https://en.wikipedia.org/wiki/Money_creation https://en.wikipedia.org/wiki/Money_creation
  - rsj_hn 5y ago
    > Keep in mind that there's a theory where bank loans are actually a way to create money that doesn't exist nor has any collateral. The "reserve multiplier" theory of money creation is incompatible with modern bank regulation, or even the meaning of the terms used (banks only lend reserves to each other, never to customers), nor does it describe how money creation works in real economies (despite the fact that it appears in wikipedia). For a good overview of how money creation works, see this BoE report: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
    - nuerow 5y ago
      > The "reserve multiplier" theory of money creation is incompatible with modern bank regulation -- it's actually a crime (...) No, not really. The only requirement for the "banks create money through loans" theory is that banks practice fractional reserve banking. https://en.wikipedia.org/wiki/Fractional-reserve_banking https://en.wikipedia.org/wiki/Fractional-reserve_banking
      - bloodyplonker22 5y ago
        sorry, but fractional reserve banking is no longer used in modern banking. It was done away with several years ago. Here's a little explainer for you: https://www.youtube.com/watch?v=cDNSNX48Kmo https://www.youtube.com/watch?v=cDNSNX48Kmo
  - endofreach 5y ago
    I wonder why it‘s „just“ called a theory. At least for the central european bank this is the reality. In germany the term is „Giralgeldschöpfung“ which apparently translates to „giro money creation“ - so it seems we are talking about the same thing. When i read about it a few years back and talked to people about it, was surprised how little people know about this. Especially the smart people from the financial industry that i know, or bankers… i just stumbled upon it accidentally. I am not educated in the financial workings, but the recent history shows that the people in charge might seems educated, but shouldn‘t be trusted. There is too much of a gap of interests and understanding between the financial industry and the actual economy.
timbit42 5y ago
The article doesn't say Friedman was an Austrian school economist. It says Austrian school economic thought is encapsulated by thinkers like Milton Friedman.
ur-whale 5y ago
> Wow this article is just flat out wrong It's Jacobin magazine, what did you expect exactly? Something unbiased, perhaps?

neilwilson 5y ago

It's wrong about bank money creation as well. Banks don't just create money because they like your smile. They issue their own liabilities at a discount against collateral, the charge over which they take as their own asset. The collateral has to exist now, and generally not in the future. And it is this that causes the problem with banking - they are renown for wanting to lend you an umbrella when the sun is shining. Banks are for the most part liquidity providers against existing assets. And it is the existence of existing assets and the market for their liquidation that generates the systemic risk limit on bank lending expansion.

nuerow 5y ago
> Banks don't just create money because they like your smile. They issue their own liabilities at a discount against collateral, the charge over which they take as their own asset. Keep in mind that there's a theory where bank loans are actually a way to create money that doesn't exist nor has any collateral. https://en.wikipedia.org/wiki/Money_creation https://en.wikipedia.org/wiki/Money_creation
- rsj_hn 5y ago
  > Keep in mind that there's a theory where bank loans are actually a way to create money that doesn't exist nor has any collateral. The "reserve multiplier" theory of money creation is incompatible with modern bank regulation, or even the meaning of the terms used (banks only lend reserves to each other, never to customers), nor does it describe how money creation works in real economies (despite the fact that it appears in wikipedia). For a good overview of how money creation works, see this BoE report: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
  - nuerow 5y ago
    > The "reserve multiplier" theory of money creation is incompatible with modern bank regulation -- it's actually a crime (...) No, not really. The only requirement for the "banks create money through loans" theory is that banks practice fractional reserve banking. https://en.wikipedia.org/wiki/Fractional-reserve_banking https://en.wikipedia.org/wiki/Fractional-reserve_banking
    - bloodyplonker22 5y ago
      sorry, but fractional reserve banking is no longer used in modern banking. It was done away with several years ago. Here's a little explainer for you: https://www.youtube.com/watch?v=cDNSNX48Kmo https://www.youtube.com/watch?v=cDNSNX48Kmo
- endofreach 5y ago
  I wonder why it‘s „just“ called a theory. At least for the central european bank this is the reality. In germany the term is „Giralgeldschöpfung“ which apparently translates to „giro money creation“ - so it seems we are talking about the same thing. When i read about it a few years back and talked to people about it, was surprised how little people know about this. Especially the smart people from the financial industry that i know, or bankers… i just stumbled upon it accidentally. I am not educated in the financial workings, but the recent history shows that the people in charge might seems educated, but shouldn‘t be trusted. There is too much of a gap of interests and understanding between the financial industry and the actual economy.

timbit42 5y ago

The article doesn't say Friedman was an Austrian school economist. It says Austrian school economic thought is encapsulated by thinkers like Milton Friedman.

ur-whale 5y ago

> Wow this article is just flat out wrong It's Jacobin magazine, what did you expect exactly? Something unbiased, perhaps?